<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1999
--------------------------------------------------
Commission file number 1-13093
--------------------------------------------------
Meritor Automotive, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3354643
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2135 West Maple Road, Troy, Michigan 48084-7186
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(Address of principal executive offices) (Zip Code)
(248) 435-1000
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(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
62,327,673 shares of registrant's Common Stock, $1.00 par value, were
outstanding on January 31, 2000.
<PAGE> 2
MERITOR AUTOMOTIVE, INC.
INDEX
PART I. FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements: No.
<S> <C> <C>
Statement of Consolidated Income - - Three Months
Ended December 31, 1999 and 1998..................................... 2
Consolidated Balance Sheet - -
December 31, 1999 and September 30, 1999............................. 3
Statement of Consolidated Cash Flows - -
Three Months Ended December 31, 1999 and 1998........................ 4
Notes to Consolidated Financial Statements........................... 5
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition.......................... 12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................... 15
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings......................................................... 16
Item 2. Changes in Securities and Use of Proceeds................................. 16
Item 5. Other Information......................................................... 17
Item 6. Exhibits and Reports on Form 8-K.......................................... 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
MERITOR AUTOMOTIVE, INC.
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------
1999 1998
---- ----
(In millions, except per share amounts)
<S> <C> <C>
Sales................................................ $ 1,136 $ 944
Cost of sales........................................ (970) (817)
--------- ---------
Gross margin......................................... 166 127
Selling, general and administrative.................. (79) (58)
Gain on sale of business............................. 83 -
--------- ---------
Operating earnings................................... 170 69
Equity in earnings of affiliates..................... 9 7
Other income - net................................... - 4
Minority interests................................... (4) (3)
Interest expense..................................... (17) (11)
--------- ---------
Income before income taxes........................... 158 66
Provision for income taxes........................... (61) (26)
--------- ---------
Net income........................................... $ 97 $ 40
========= =========
Earnings per share:
Basic......................................... $ 1.46 $ .58
========= =========
Diluted....................................... $ 1.45 $ .58
========= =========
Cash dividends per common share...................... $ .105 $ .105
========= =========
Average common shares outstanding:
Basic......................................... 66.6 69.1
========= =========
Diluted....................................... 66.7 69.1
========= =========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
MERITOR AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
1999 September 30,
(Unaudited) 1999
----------------- -----------------
ASSETS (In millions)
------
Current assets:
<S> <C> <C>
Cash................................................................. $ 69 $ 68
Receivables (less allowance for doubtful accounts:
December 31, 1999, $11; September 30, 1999, $10).............. 707 742
Inventories.......................................................... 407 392
Other current assets................................................. 125 130
------- -------
Total current assets............................................. 1,308 1,332
------- -------
Net property.............................................................. 724 766
Net goodwill (less accumulated amortization: December 31, 1999, $38;
September 30, 1999, $35) .............................................. 449 454
Other assets.............................................................. 243 244
------- -------
TOTAL............................................... $ 2,724 $ 2,796
======= =======
LIABILITIES AND SHAREOWNERS' EQUITY
-----------------------------------
Current liabilities:
Short-term debt...................................................... $ 28 $ 44
Accounts payable..................................................... 639 712
Accrued compensation and benefits.................................... 125 144
Accrued income taxes................................................. 55 28
Other current liabilities............................................ 215 196
------- -------
Total current liabilities........................................ 1,062 1,124
Long-term debt............................................................ 820 802
Accrued retirement benefits............................................... 364 371
Other liabilities......................................................... 101 116
Minority interests........................................................ 37 35
Shareowners' equity:
Common stock (December 31, 1999, 69.1 shares issued and
63.8 outstanding; September 30, 1999, 69.1 shares issued
and 68.8 outstanding).......................................... 69 69
Additional paid-in-capital........................................... 158 158
Retained earnings.................................................... 373 283
Treasury stock (December 31, 1999, 5.3 shares; September 30, 1999,
0.3 shares) ...................................................... (97) (6)
Accumulated other comprehensive loss................................. (163) (156)
------- -------
Total shareowners' equity........................................ 340 348
------- -------
TOTAL............................................... $ 2,724 $ 2,796
======= =======
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE> 5
MERITOR AUTOMOTIVE, INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
----------------------------
1999 1998
------------ -----------
(In millions)
<S> <C> <C>
OPERATING ACTIVITIES
Net income...................................................................... $ 97 $ 40
Adjustments to net income to arrive at cash (used for) provided by
operating activities:
Depreciation.............................................................. 32 26
Amortization............................................................... 4 1
Gain on sale of business................................................... (83) -
Pension contributions...................................................... (7) -
Other, net................................................................. 6 6
Changes in assets and liabilities, excluding effects of
acquisitions, divestitures and foreign currency adjustments.............. (51) (55)
------- ------
CASH (USED FOR) PROVIDED BY OPERATING
ACTIVITIES............................................................. (2) 18
------- ------
INVESTING ACTIVITIES
Capital expenditures............................................................ (31) (19)
Acquisition of businesses and investments....................................... (10) (180)
Proceeds from disposition of assets, property and businesses.................... 135 -
------- ------
CASH PROVIDED BY (USED FOR) INVESTING
ACTIVITIES............................................................. 94 (199)
------- ------
FINANCING ACTIVITIES
Net (decrease) increase in short-term borrowings................................ (15) 8
Net (decrease) increase in revolving debt....................................... (23) 268
Net increase (decrease) in other long-term debt................................. 45 (34)
------- ------
Net increase in debt....................................................... 7 242
Cash dividends.................................................................. (7) (7)
Purchases of treasury stock..................................................... (91) -
Payment of interest rate settlement cost........................................ - (31)
------- ------
CASH (USED FOR) PROVIDED BY FINANCING
ACTIVITIES............................................................. (91) 204
------- ------
CHANGE IN CASH.................................................................. 1 23
CASH AT BEGINNING OF PERIOD..................................................... 68 65
------- ------
CASH AT END OF PERIOD........................................................... $ 69 $ 88
======= ======
</TABLE>
See notes to consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE> 6
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Meritor Automotive, Inc. (the company or Meritor) is a leading global
supplier of a broad range of components and systems for use in commercial,
specialty and light vehicles. The consolidated financial statements are
those of the company and its consolidated subsidiaries.
In the opinion of the company the unaudited financial statements contain
all adjustments, consisting solely of adjustments of a normal recurring
nature, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. These statements
should be read in conjunction with the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999, including the financial
statements incorporated by reference in the Form 10-K. The results of
operations for the three month period ended December 31, 1999 are not
necessarily indicative of the results for the full year.
It is the company's practice for each interim reporting period to make an
estimate of the effective tax rate expected to be applicable for the full
fiscal year. The rate so determined is used in providing for income taxes
on a year-to-date basis.
Certain prior period amounts have been reclassified to conform with
current period presentation.
2. In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities," effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
SFAS 133 requires that all derivatives be recognized as either assets or
liabilities in the statement of financial position and be measured at fair
value. In June 1999, the FASB amended SFAS 133 by issuing Statement of
Financial Accounting Standards No. 137 (SFAS 137), "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133--an amendment of FASB Statement No. 133".
The new standard delayed the effective date of SFAS 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. The company is
currently analyzing the impact SFAS 133 will have on its financial
statements.
<PAGE> 7
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. During fiscal 1999, the company completed three acquisitions. On December
28, 1998, the company acquired the assets of Euclid Industries and assumed
substantially all of Euclid's liabilities. The company completed its
acquisition of the heavy truck axle manufacturing operations of Volvo
Truck Corporation on December 31, 1998. The purchase price for Volvo was
approximately $135 million in cash, of which $34 million is deferred at
December 31, 1999. During the second quarter of fiscal 1999, the company
acquired the Heavy Vehicle Braking Systems (HVBS) business of LucasVarity
plc for approximately $390 million in cash.
The above acquisitions were accounted for by the purchase method of
accounting. Accordingly, the results of operations of the acquired
businesses are included with those of the company for the periods
subsequent to the dates of acquisition. The assets and liabilities have
been recorded at fair value as of the acquisition dates. The excess of the
purchase price over the fair market value of assets acquired of $421
million is included in Net Goodwill in the accompanying Consolidated
Balance Sheet and is being amortized on a straight-line basis over 40
years.
The following unaudited pro forma consolidated results of operations for
the three months ended December 31, 1998 assume that each of the foregoing
acquisitions occurred as of the beginning of fiscal 1999 (in millions,
except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1998
-----------------------------
<S> <C>
Net sales.......................................... $ 1,093
=======
Net income......................................... $ 40
=======
Basic and diluted earnings per share............... $ .58
=======
</TABLE>
4. On November 30, 1999, the company completed the sale of its Light Vehicle
Systems seat adjusting systems business for approximately $130 million
cash, resulting in a one-time gain of $83 million ($51 million after-tax,
or $0.76 per diluted share). The seat adjusting systems business had
fiscal 1999 sales of approximately $130 million.
<PAGE> 8
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. In the third quarter of fiscal 1999, the company recorded a restructuring
charge of $28 million ($17 million after-tax, or $0.25 per basic and
diluted share). This charge included severance and other employee costs of
approximately $16 million related to a net reduction of approximately 300
employees, with the balance primarily associated with facility related
costs from the rationalization of operations. The employees terminated
were from various lines of businesses and functions. As of December 31,
1999, approximately $5.7 million had been paid in termination benefits,
with a net reduction of approximately 250 employees. As of December 31,
1999, approximately $10 million of the 1999 reserve remains in Other
Current Liabilities in the accompanying Consolidated Balance Sheet. The
company expects the remaining restructuring actions will be substantially
completed by the end of fiscal 2000.
6. Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------- --------------------
<S> <C> <C>
Finished goods.............................................. $ 183 $ 181
Work in process............................................. 124 117
Raw materials, parts and supplies........................... 151 145
--------- ----------
Total.................................................. 458 443
Less allowance to adjust the carrying value of
certain inventories to a last in, first-out
(LIFO) basis........................................... 51 51
--------- ----------
Inventories............................................ $ 407 $ 392
========= ==========
</TABLE>
7. Other Current Assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
Current deferred income taxes............................... $ 82 $ 83
Customer tooling............................................ 23 30
Prepaid expenses and other.................................. 20 17
--------- ----------
Other Current Assets................................... $ 125 $ 130
========= ==========
</TABLE>
<PAGE> 9
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8. Other Assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
Long-term deferred income taxes............................. $ 71 $ 71
Investments in affiliates................................... 51 50
Prepaid pension costs....................................... 64 66
Net capitalized computer software costs..................... 34 34
Other....................................................... 23 23
--------- ----------
Other Assets........................................... $ 243 $ 244
========= ==========
</TABLE>
9. Other Current Liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
Accrued product warranties.................................. $ 90 $ 95
Accrued taxes other than income taxes....................... 26 27
Accrued restructuring....................................... 10 11
Environmental reserves...................................... 11 10
Other....................................................... 78 53
--------- ----------
Other Current Liabilities.............................. $ 215 $ 196
========= ==========
</TABLE>
10. Other Liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
Self insurance reserves..................................... $ 16 $ 16
Environmental reserves...................................... 14 14
Deferred payments........................................... 34 44
Other....................................................... 37 42
--------- ----------
Other Liabilities...................................... $ 101 $ 116
========= ==========
</TABLE>
<PAGE> 10
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Long-term Debt is summarized as follows (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
6.8% notes due 2009, net of discount........................ $ 498 $ 498
Bank revolving Credit Facility.............................. 210 239
Lines of credit............................................. 95 50
Other....................................................... 17 15
--------- ----------
Long-term Debt......................................... $ 820 $ 802
========= ==========
</TABLE>
12. The company's financial instruments include cash, short- and long-term
debt and foreign currency forward exchange contracts. As of December 31,
1999, the carrying values of the company's financial instruments
approximated their fair values based on prevailing market prices and
rates. It is the policy of the company not to enter into derivative
financial instruments for speculative purposes. The company does enter
into foreign currency forward exchange contracts to minimize the risk of
unanticipated gains and losses from currency rate fluctuations on foreign
currency commitments entered into in the ordinary course of business.
These foreign currency forward exchange contracts relate to purchase and
sales transactions and are generally for terms of less than one year. The
foreign currency forward exchange contracts are executed with creditworthy
banks and are denominated in currencies of major industrial countries. The
notional amount of outstanding foreign currency forward exchange contracts
aggregated $214 million at December 31, 1999 and $266 million at September
30, 1999. Meritor does not anticipate any material adverse effect on its
results of operations or financial position relating to these foreign
currency forward exchange contracts.
13. Accrued Retirement Benefits consisted of the following (in millions):
<TABLE>
<CAPTION>
December 31, September 30,
1999 1999
------------------ --------------------
<S> <C> <C>
Accrued retirement medical costs............................ $ 291 $ 295
Accrued pension costs....................................... 101 104
Other....................................................... 12 12
--------- ----------
Total................................................ 404 411
Amount classified as current liability...................... 40 40
--------- ----------
Accrued Retirement Benefits.......................... $ 364 $ 371
========= ==========
</TABLE>
<PAGE> 11
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
14. Basic earnings per share are based upon the weighted average number of
shares outstanding during each period. Diluted earnings per share assumes
the exercise of common stock options when dilutive. The following table
reconciles the amounts used in the basic and diluted earnings per share
calculations (in millions, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
December 31, 1999
----------------------------------------------
Per Share
Income Shares Amount
------ ------ ------
<S> <C> <C> <C>
Basic earnings per share.................................... $ 97 66.6 $ 1.46
======
Assumed exercise of stock options........................... - 1.0
Assumed treasury shares repurchased with
proceeds............................................... - (0.9)
------ ------
Diluted earnings per share.................................. $ 97 66.7 $ 1.45
====== ====== ======
</TABLE>
15. At the beginning of fiscal 1999, the company adopted Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information". The company defines a
segment as a component of the company with business activity resulting in
revenue and expense, whose operating results are evaluated regularly by
the company's chief operating decision maker in determining resource
allocation and assessing performance and for which discrete financial
information is available. The company currently has two operating
segments, Heavy Vehicle Systems (HVS) and Light Vehicle Systems (LVS).
Within HVS, the company distinguishes between Original Equipment sales and
Aftermarket sales.
Segment information is summarized as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Sales:
HVS
Original Equipment..................................... $ 627 $ 493
Aftermarket............................................ 103 65
--------- ----------
Total HVS...................................... 730 558
LVS......................................................... 406 386
--------- ----------
Total.......................................... $ 1,136 $ 944
========= ==========
</TABLE>
<PAGE> 12
MERITOR AUTOMOTIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
15. Continued:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------------
1999 1998
------------------ --------------------
<S> <C> <C>
Operating Earnings:
HVS......................................................... $ 56 $ 45
LVS......................................................... 31 24
Gain on sale of business.................................... 83 -
--------- ----------
Operating Earnings................................... 170 69
Equity in earnings of affiliates............................ 9 7
Other income - net.......................................... - 4
Minority interests.......................................... (4) (3)
Interest expense............................................ (17) (11)
-------- ---------
Income before income taxes.................................. 158 66
Provision for income taxes.................................. (61) (26)
-------- ---------
Net income.................................................. $ 97 $ 40
======== =========
</TABLE>
16. Comprehensive income is summarized as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Net income.................................................. $ 97 $ 40
Foreign currency translation adjustments.................... (7) (7)
--------- ---------
Comprehensive income........................................ $ 90 $ 33
========= =========
</TABLE>
17. Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the company relating to the conduct of its business,
including those pertaining to product liability, intellectual property,
environmental, safety and health and employment matters. Although the
outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to the
company, management believes the disposition of matters which are pending
or asserted will not have a material adverse effect on the company's
financial statements.
<PAGE> 13
MERITOR AUTOMOTIVE, INC.
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS
2000 First Quarter Compared to 1999 First Quarter
Sales for the first quarter 2000 of $1,136 million increased by $192 million, or
20 percent, over the same period last year. The sales growth for the quarter was
driven by contributions from the three acquisitions completed in fiscal 1999,
continued strong demand in the primary North American Heavy Vehicle Systems
(HVS) markets and market penetration gains from Light Vehicle Systems (LVS) new
product introductions.
HVS sales were $730 million for the first quarter of fiscal 2000, an increase of
$172 million, or 31 percent, as compared to the first quarter last year. The
three acquisitions completed in fiscal 1999 contributed sales of $145 million,
which more than offset a $42 million sales decline resulting from the formation
of the ZF Meritor joint venture on September 1, 1999, which is accounted for
under the equity method. Excluding the effects of the acquisitions and the joint
venture formation, sales of the base HVS business increased $69 million, or 13
percent. This sales growth reflects the continuing strength of the North
American HVS Original Equipment and Aftermarket markets, partially offset by a
decline in the European trailer market and the negative impact of currency
translation. HVS sales in North America, excluding acquisitions and transmission
and clutch sales now reported by the ZF Meritor joint venture, increased $69
million, or 18 percent. European sales were down about $7 million, or 8 percent,
and South American sales were down $2 million, or 12 percent, while Asia/Pacific
sales were up about $9 million, or 75 percent.
LVS sales increased by $20 million, or 5 percent, in the first quarter to $406
million, as compared to the same quarter last year. Market penetration gains,
principally in North American roof and undercarriage systems, drove the sales
growth. LVS sales in North America increased about $37 million, or 24 percent.
LVS sales in Europe were down $15 million, or 8 percent, primarily due to the
negative impact of currency translation, while sales in the rest of the world
were down $2 million.
Fiscal 2000 first quarter operating margins improved to 15.0 percent, up from
7.3 percent for the same period last year. Operating margins improved to 7.7
percent excluding the one-time gain on sale of business. This improvement was
driven by the company's continued focus on cost reduction and process
improvement programs and the impact of restructuring actions initiated in late
fiscal 1999, offset somewhat by premium costs associated with the high level of
demand in the North American heavy truck market.
HVS operating earnings for the first quarter of fiscal year 2000 were $56
million, 24 percent higher than the same period a year ago. Operating margins in
the first quarter were 7.7 percent, down from 8.1 percent in last year's first
quarter due principally to higher premium and other volume-related expenses
incurred in connection with the strong demand in the North American heavy truck
market.
<PAGE> 14
MERITOR AUTOMOTIVE, INC.
LVS operating margins improved in the first quarter of fiscal 2000 to 7.6
percent from 6.2 percent in the same period last year. The improvement reflects
savings from material purchases and cost reduction programs, as well as higher
sales.
The company's process improvement and cost reduction programs relate to (i)
purchasing, which includes outsourcing non-core manufacturing and using lower
cost global sourcing of materials and supply base management; and (ii)
manufacturing, which includes shifting production to lower cost facilities,
consolidating common processes, improving material flow and investing in capital
systems.
Affiliate income was $9 million for the quarter, up $2 million from the prior
year's quarter, primarily as a result of higher North American sales of
anti-lock braking systems by the company's joint venture with WABCO. The
company's first quarter effective tax rate improved to 38.5 percent, down from
40.0 percent for last year's first quarter, primarily as a result of certain
legal entity re-alignment actions.
Net income was $97 million, or $1.45 per diluted share for the first fiscal
quarter ended December 31, 1999. Net income, before special items, improved by
$6 million to $46 million, or $0.69 per share, an increase of 19 percent in
earnings per diluted share over the same period last year. Special items in the
first quarter of fiscal 2000 included a one-time gain of $83 million ($51
million after-tax, or $0.76 per diluted share), resulting from the sale of the
company's seat adjusting systems business.
As of December 31, 1999, the company had acquired 5,312,500 shares of its
outstanding common stock, at an aggregate cost of $97 million, pursuant to its
$125 million share repurchase program. As of January 31, 2000, the company had
repurchased 6,792,200 shares and had completed this program. The program's
first quarter impact was a reduction of average shares outstanding from 69.1
million last year to 66.7 million this year, thereby benefiting earnings per
share by $0.02 before special items (discussed below).
On November 30, 1999, the company completed the sale of its LVS
seat adjusting systems business for approximately $130 million cash. The seat
adjusting business had fiscal 1999 sales of approximately $130 million. This
divestiture reflects the company's continuous review and assessment of existing
businesses, placing emphasis on the core businesses that support the company's
long-term strategic direction.
FINANCIAL CONDITION
Cash used for operating activities for the first quarter of fiscal 2000 was $2
million, a decrease of $20 million as compared to the first quarter of fiscal
1999. The decrease was due primarily to increases in working capital
requirements, principally in inventories and accounts payable.
Capital expenditures were $31 million in the first quarter of fiscal 2000, an
increase of $12 million from the first quarter of fiscal 1999. The increase is
primarily related to the three acquisitions in fiscal 1999 (discussed above).
The company anticipates full year fiscal 2000 capital expenditures of
approximately $205 million. Cash provided by investing activities in fiscal 2000
included $135 million in proceeds from the sale of businesses, including the
sale of the LVS seat adjusting systems business (discussed above).
<PAGE> 15
MERITOR AUTOMOTIVE, INC.
Cash used for financing activities in fiscal 2000 first quarter includes
payments of $91 million for repurchases of the company's common stock and $7
million for cash dividends. The company's first quarter dividend of 10.5 cents
per share was paid on December 13, 1999, to shareowners of record on November
22, 1999.
On February 9, 2000, the board of directors declared a quarterly dividend of
10.5 cents per share on its common stock, payable March 13, 2000, to
shareowners of record on February 22, 2000. In addition, the board of
directors authorized up to an additional $75 million for the purchase of the
company's common stock.
Cash used for financing activities in fiscal 1999 first quarter includes $7
million of cash dividends and $31 million for the settlement of interest rate
agreements. In anticipation of offering debt securities in fiscal 1998, the
company entered into interest rate agreements in April 1998 to secure interest
rates. The planned issuance did not occur in fiscal 1998, initially due to
the consideration of a major acquisition and, subsequently, the instability
in the U.S. corporate bond market. The company settled the interest rate
agreements in October 1998 resulting in a payment of $31 million in the
fiscal 1999 first quarter. On February 24, 1999, the company completed its
public offering of debt securities consisting of $500 million 10-year fixed-rate
6.8% notes.
Cash provided by financing activities for the fiscal 1999 first quarter included
a net increase in debt of $242 million, of which $180 million was utilized to
fund acquisitions of businesses.
The company's long-term debt to capitalization ratio increased to 69 percent at
December 31, 1999, from 68 percent at September 30, 1999. These ratios reflect
the additional debt incurred in connection with the three acquisitions completed
in fiscal 1999.
Meritor regularly considers various strategic and business opportunities,
including acquisitions. Although no assurance can be given as to whether or when
any additional acquisitions will be consummated, if agreement were to be
reached, the company could finance such acquisitions by issuance of additional
debt or equity securities. The additional debt from any acquisitions, if
consummated, could further increase the company's debt to capitalization ratio.
Information with respect to the effect on the company and its manufacturing
operations of compliance with environmental protection requirements and
resolution of environmental claims is contained under the caption "Environmental
Matters" in the Chief Financial Officer's Review, Management's Discussion and
Analysis in the company's 1999 Annual Report to Shareowners, incorporated by
reference into the company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1999. Management believes that at December 31, 1999 there
has been no material change to this information.
INTERNATIONAL OPERATIONS
On January 1, 1999, the Euro became the common currency of eleven countries of
the European Union. During a three-year transition period, the present national
currencies of these eleven countries will become sub-units of the Euro at fixed
exchange rates. The European Union's current plans call for the transition
period to be completed by July 1, 2002, at which time the Euro will become the
sole legal tender in those participating countries.
The company is engaged in business in some of the countries that participate in
the European Monetary Union, and sales for fiscal 1999 in these countries were
approximately 18 percent of the company's total sales. In addition, the company
enters into foreign currency forward exchange contracts with respect to several
of the existing currencies that will be subsumed into the Euro and has
borrowings in participating currencies primarily under its revolving Credit
Facility. The company has analyzed the potential effects of the Euro conversion
on competitive conditions, information technology and other systems, currency
risks, financial instruments and contracts, and has examined the tax and
accounting consequences of Euro conversion, and believes that the conversion has
not had and will not have a material adverse effect on its business, operations
and financial condition.
<PAGE> 16
MERITOR AUTOMOTIVE, INC.
The company is making the necessary adjustments to accommodate the conversion,
including modifications to its information technology systems and programs,
pricing schedules and financial instruments. The company expects that all
necessary actions will be completed in a timely manner, and that the costs
associated with the conversion to the Euro will not be material.
YEAR 2000 ISSUES
Meritor successfully completed a company-wide year 2000 project, resulting in no
significant disruptions during the year 2000 event, or to-date. As of December
31, 1999, the company spent $19 million since the inception of the project, of
which $13 million related to business and engineering systems and IT
infrastructure and $6 million related to factory floor and supply chain. The
company does not anticipate any future issues or material expenditures
associated with the year 2000.
Forward-looking statements contained in this section should be read in
conjunction with the company's disclosures in Item 5 under the heading
Cautionary Statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to foreign currency exchange rate risk inherent in its
sales and assets and liabilities denominated in currencies other than the U.S.
dollar and interest rate risk associated with the company's debt. The company
does enter into foreign currency forward exchange contracts to minimize the risk
of unanticipated gains and losses from currency rate fluctuations on foreign
currency commitments entered into in the ordinary course of business. Also, the
company may, from time to time, use interest rate agreements in the management
of interest rate exposure on selected debt issuances. It is the policy of the
company not to enter into derivative financial instruments for speculative
purposes.
The company has performed a sensitivity analysis assuming a hypothetical 10
percent adverse movement in foreign currency exchange rates and interest rates
applied to the underlying exposures described above. As of December 31, 1999,
the analysis indicated that such market movements would not have a material
effect on the company's consolidated financial position, results of operations
or cash flows. Actual gains or losses in the future may differ significantly
from that analysis, however, based on changes in the timing and amount of
interest rate and foreign currency exchange rate movements and the company's
actual exposures.
<PAGE> 17
MERITOR AUTOMOTIVE, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As reported under the heading "Item 1 - Business - Environmental
Matters" on pages 9 and 10 of the company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999, the company has
been designated as a potentially responsible party at three Superfund
sites. In January 2000, the United States Environmental Protection
Agency ("EPA") notified the company that it may be a potentially
responsible party at an additional Superfund site located in Osceola,
Indiana. The EPA has already completed clean-up of this site and is
seeking reimbursement of its costs (estimated at $5 million). The
company is investigating to determine the extent of its involvement
with this site and its share of the clean-up costs, if any. The
company believes that its potential liability for this site will not
be material.
Item 2. Changes in Securities and Use of Proceeds
On October 1, 1999, the company issued 422 shares of Common Stock to
each of Donald R. Beall and James E. Marley, non-employee directors
of the company pursuant to the company's Directors Stock Plan, in
lieu of cash payment of quarterly retainer fees for board service.
The issuance was exempt from registration under the Securities Act of
1933, as amended, as a transaction not involving a public offering
under Section 4(2).
<PAGE> 18
MERITOR AUTOMOTIVE, INC.
Item 5. Other Information
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements
relating to future results of the company (including
certain projections and business trends) that are
"forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of
certain risks and uncertainties, including but not limited
to global economic and market conditions; the demand for
commercial, specialty and light vehicles for which the
company supplies products; risks inherent in operating
abroad; OEM program delays; demand for and market
acceptance of new and existing products; successful
development of new products; reliance on major OEM
customers; labor relations of the company, its customers
and suppliers; successful integration of acquired
businesses; competitive product and pricing pressures; the
amount of the company's debt; as well as other risks and
uncertainties, including but not limited to those detailed
from time to time in the filings of the company with the
Securities and Exchange Commission. See also "Management's
Discussion and Analysis of Results of Operations and
Financial Condition" and "Quantitative and Qualitative
Disclosures about Market Risk" herein. These
forward-looking statements are made only as of the date
hereof, and the company undertakes no obligation to update
or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended December 31, 1999.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MERITOR AUTOMOTIVE, INC.
------------------------
(Registrant)
Date February 14, 2000 By D.M. Stelfox
----------------------- --------------------------------
D.M. Stelfox
Vice President and Controller
(For the Registrant and as
Principal Accounting Officer)
Date February 14, 2000 By V.G. Baker, II
----------------------- --------------------------------
V.G. Baker, II
Senior Vice President
General Counsel and Secretary
<PAGE> 20
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-1-1999
<PERIOD-END> DEC-31-1999
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 707
<ALLOWANCES> 11
<INVENTORY> 407
<CURRENT-ASSETS> 125
<PP&E> 724
<DEPRECIATION> 1,099
<TOTAL-ASSETS> 2,724
<CURRENT-LIABILITIES> 1,062
<BONDS> 820
0
0
<COMMON> 69
<OTHER-SE> 271
<TOTAL-LIABILITY-AND-EQUITY> 2,724
<SALES> 1,136
<TOTAL-REVENUES> 1,228
<CGS> 970
<TOTAL-COSTS> 1,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> 158
<INCOME-TAX> 61
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.45
</TABLE>
